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1: Were the options granted under a tax deferral scheme for the purposes of Subdivision 83A-C of the Income Tax Assessment Act 1997 (ITAA 1997)?

: Yes. Question 2: Did the deferred taxing point occur in relation to the options when the resulting shares were sold for the purpose of section 83A-120 of the ITAA 1997? Answer: Yes. Question 3: Is the employee share scheme discount amount arising in relation to the options included in your assessable income in the year the deferred taxing point occurred for the purpose of section 83A-110 of the ITAA 1997? Answer: Yes. This ruling applies for the following period: Year ended 30 June 20XX The scheme commenced on: 1 July 20XX

While you were employed by Company A you received an offer to participate in Company A's plan (the Plan) to receive a specified number of options (the Award) made under the general terms and conditions contained in the rules of the Plan, and specific terms and conditions as listed below: • There was no issue cost or exercise price in relation to the options. • There were disposal restrictions with a participant not being able to transfer the Award granted under the Plan. • For taxation purposes, the Plan met the requirements to be a tax-deferred scheme as there was a real risk of forfeiting the option, being that their retention was subject to performance hurdles. The deferred taxing point was expected to occur when the option was exercised with no selling restrictions, and the amount to be included in the employee's assessable income being equal to the market value of the underlying shares; and • The vesting conditions were subject to Company A achieving six specified milestones with tenure by the specified dates related each one. The rules of the Plan (the Rules) included the following information:

• Subject to the Board's discretion, the eligible employee could, by notice in writing to the Board, nominate a Nominated Party of the employee in whose favour the employee wished the options subject to the Offer to be issued. If the Board permitted the options to be issued to a Nominated Party, then the Nominated Party also agreed to be bound by the Rules. • The Board had the power to make adjustments to or vary the terms of exercise of an option, including reducing or waiving the option vesting conditions attached to options in whole or in part at any time and in any particular case. • If a Change of Control Event occurred then, subject to compliance with the Listing Rules and the Corporations Act : - all unvested options would vest and become immediately exercisable with such vesting deemed to have taken place immediately on the Change of Control Event, regardless of whether or not the employment, engagement or office of the Participant is terminated or ceases in connection with the Change of Control Event; and - any of the option vesting conditions attaching to those unvested options would be waived in accordance with the Rules.

• The participant has no right or interest in a share in relation to an option held by the participant until the option is exercised and the share is issued. • The Board had the power to make adjustments to, or vary, the terms of exercising options, including reducing or waiving the option vesting conditions attached to the options in whole or in part at any time, with any variation being subject to requirements provided in the Corporations Act and/or the Listing Rules. • Subdivision 83A-C of the Income Tax Assessment Act 1997 applies to the Plan except to the extent that an Offer provides otherwise. You signed the acceptance form to participate in the Plan on behalf of the Trustees for Trust ABC (the Trust) as your nominated party to be issued the specified number of options under the Plan. The Trust is a discretionary trust of which you and your spouse are the trustees (the Trustees), which has the following potential beneficiaries: • You • Family members; and • Company B.

You did not include any employee share scheme discount amount in your assessment in the income year in which the options were issued, nor had Company A issued an Employee Share Scheme Statement to you for that income year in relation to any assessable amount you had arising in relation to the options. A legal firm issued a notice in relation to the off-market takeover bid for all of Company A's shares by Company XYZ via a cash offer (the Takeover Offer). A copy of the Bidder's Statement was provided in relation to the takeover which outlined it had been lodged with the Australian Securities and Investments Commission and provided the terms of the Takeover Offer which included that Company A's Board had unanimously recommended that Company A's shareholders accept the Takeover Offer, specifying the takeover offer date which would expire several months later. Company A sent an email to their option holders indicating that:

• The takeover offer made by Company XYZ satisfied the conditions for a Change of Control as defined in the Plan. Therefore, the Board had resolved that all conditions attached to the options had been waived and the options had vested and were available to be exercised. • To receive the Company A shares the options holders had to elect to exercise the options for nil consideration, by sending an email to the specified person by a specified date. • It was anticipated that Computershare would be notified during the following week to issue all of the shares. • The option holders would receive a holding statement from Computershare once the shares had been issued. • The shares remained subject to the Company A's Securities Trading Policy, which required approval to be sought prior to disposing of the shares, including accepting the takeover offer; and • The option holders were requested to ensure that bank details had been provided to ensure that any payments for the sale of the shares were made via direct deposit. The Trustees accepted the Takeover Offer to receive a specified cash amount for each option.

An amount was deposited in the Trustee's bank account, being consideration for the disposal of the resulting shares in Company A to Company XYZ. The takeover of Company A by Company XYZ was declared unconditional and completed. Your employment with Company A ceased when you were made redundant. The following events occurred in relation to the Company A options held by the Trustees: • Date 1 - The specified number of options as provided in the Offer (the Options) were granted to the Trustees. • Date 2 - The Options were exercised by the Trustees. • Date 3 - Fully paid ordinary shares in Company A were issued to the Trustees, being a resulting share issued for each option exercised, occurring on the same date as Date 2; and • Date 4 - The Trustees disposed of the resulting shares to Company XYZ, which occurred less than 30 days after Date 2.

Income Tax Assessment Act 1997 Division 83A Income Tax Assessment Act 1997 Subdivision 83A-B Income Tax Assessment Act 1997 Subdivision 83A-C Income Tax Assessment Act 1997 section 83A-10 Income Tax Assessment Act 1997 section 83A-20 Income Tax Assessment Act 1997 section 83A-25 Income Tax Assessment Act 1997 section 83A-33 Income Tax Assessment Act 1997 section 83A-45 Income Tax Assessment Act 1997 section 83A-105 Income Tax Assessment Act 1997 section 83A-110 Income Tax Assessment Act 1997 section 83A-305 Income Tax Assessment Act 1997 section 83A-315

Question 1: Were the options granted under a tax deferral scheme for the purposes of Subdivision 83A -C of the Income Tax Assessment Act 1997 (ITAA 1997)? Summary You were granted the options under a tax deferral scheme for the purpose of Subdivision 83A-C of the ITAA 1997. Detailed reasoning Employee share schemes Generally, Division 83A applies where an employee ESS interest under an employee share scheme (ESS) at a discount under section 83A-20 of the ITAA 1997. In summary, the ESS provisions recognise the dual nature of grants of shares and rights to acquire shares (options), defined as ESS interests, as both remuneration and investments. To this end, the ESS provisions provide a mechanism for recognising an appropriate value for remuneration purposes and an adjustment to the purchase price for investment purposes to reflect the amount treated as remuneration. The ESS provisions achieve this outcome by: • Determining when a taxpayer needs to include any discount received in relation to a share or right to acquire the share in their assessable income

• Calculating the amount of this discount using the market value of the share or right to acquire the share at this date ignoring any selling restrictions or forfeiture conditions, and • Using this date and the market value of the share or right as the acquisition date and amount paid for it for all other income tax purposes. An ESS is defined in subsection 83A-10(2) as a scheme under which ESS interests in a company are provided to employees, or associates of employees, of the company or a subsidiary of the company, in relation to the employee's employment. An ESS interest in a company is defined in subsection 83A-10(1) of the ITAA 1997 as a beneficial interest in: (a) a share in the company; or (b) a right to acquire a beneficial interest in a share in the company. The type of ESS the employee participates in, and in some cases the employee's personal circumstances, will determine when the discount arising in relation to the granting of the ESS interests will be assessed for taxation purposes.

The default position under Division 83A of the ITAA 1997 is that an employee who acquires an ESS interest is taxed upfront on any discount to market value of the ESS interest under subsection 83A-20(1) of the ITAA 1997. Under a taxed upfront ESS, the discount is included in the taxpayer's assessable income in the income year in which the ESS interest is acquired under subsection 83A-25(1) of the ITAA 1997. However, Subdivision 83A-C of the ITAA 1997 for deferred taxation will apply to an ESS interest instead of Subdivision 83A-B of the ITAA 1997 if all of the following requirements contained in subsection 83A-105(1) of the ITAA 1997 are satisfied: • Upfront taxation under Subdivision 83A-B of the ITAA 1997 would otherwise apply to the ESS interest. • After applying the market value test in section 83A-315 of the ITAA 1997, there is still a discount in relation to the interest. • The start-up concession in section 83A-33 of the ITAA 1997 does not reduce the taxpayer's assessable income for the interest in ESS interests acquired after 1 July 2015 • For ESS interests acquired from 1 July 2015, the further conditions in section 83A-45 of the ITAA 1997 as follows must be met:

- Subsection 83A-45(1) of the ITAA 1997- When you acquire the ESS interest you are employed by a company or a subsidiary of the company - Subsection 83A-45(2) of the ITAA 1997 - The ESS relates only to ordinary shares - Subsection 83A-45(3) of the ITAA 1997 - There is no breach of the integrity rule preventing the ESS interest being in certain share trading and investment companies, together with some other requirements; and - Subsection 83A-45(6) of the ITAA 1997- The employee/taxpayer does not hold more than 10% of the shares in the issuing company or cannot control more than 10% of the votes in that company at a general meeting. • If the ESS interest is a beneficial interest in a share, the taxpayer and the ESS meet the conditions in paragraph 83A-105(5)(2) of the ITAA 1997; and

• If the ESS interest If the ESS interest is a beneficial interest in a right, from 1 July 2015 this condition will be satisfied if at the time the employee acquired their beneficial interest in rights, the ESS genuinely restricted them from immediately disposing of the rights in accordance with subsection 83A-105(6) of the ITAA 1997. The ESS's rules must also expressly state that Subdivision 83A-C applies to the scheme. Application to your situation We have taken the following into consideration when making our decision when determining the nature of the ESS you participated in based on the facts of your situation: • You were an employee of Company A, who offered you the opportunity to participate in the Plan in relation to the granting of the options • The Plan only related to ordinary resulting shares being received when the options were exercised. • The options were ESS interests granted under an ESS at a discount to their market value, with no consideration having to be paid to acquire them. Therefore, they were acquired at a discount. • The Plan met the conditions contained in subsection 83A-10(2) of the ITAA 1997 for it to be viewed as an ESS.

• Based on the information provided, Company A was not a start-up company, therefore the start-up concession is not a consideration • Nothing has been provided for us to reasonably determine that Company A and its subsidiaries, if any, were share trading and investment companies, or that you held 10% of the shareholding and voting rights in Company A. • In accordance with the Plan the options could not be traded • The Plan met the requirements to be a tax-deferred scheme as there was a real risk of forfeiting the options; and • The Plan expressly stated that Subdivision 83A-C of the ITAA 1997 applied in relation to the options. Additionally, Company A had not issued an ESS Statement in relation to any ESS discount amount assessable to you in the income year in which the options were granted. Based on the information provided with the ruling it is viewed that the options were granted under a deferral ESS under Subdivision 83A-C of the ITAA 1997. Therefore, the ESS discount amount arising in relation to the options will be assessable when the deferred taxing point occurred, as discussed below.

Question 2: Did the deferred taxing point occur in relation to the options when the resulting shares were sold for the purpose of section 83A-120 of the ITAA 1997? Summary The deferred taxing point occurred on the date the resulting shares received from exercising the options were sold because: • there were no further restrictions in relation to the sale of the resulting shares on that date; and • the sale of the resulting shares had occurred within 30 days of the date the options were exercised. Detailed reasoning Deferred taxing point for rights to acquire shares When tax on the acquisition of an ESS interest is deferred, it is delayed and the ESS discount is not taxed until when the earliest taxing point occurs, referred to as the deferred taxing point. Ordinarily, the deferred taxing point for rights to acquire shares (options) granted on or after 1 July 2015 will be the earliest of the times in accordance with subsections 83A-120(4), (6) and (7) of the ITAA 1997, summarised as follows:

• when the ESS interest has not been exercised, there is no real risk of forfeiting the ESS interest, and the scheme no longer genuinely restricts disposal of the ESS interest (subsection 83A-120(4) of the ITAA 1997); or • the end of the 15-year period starting when the employee acquired the ESS interest (subsection 83A-120(6) of the ITAA 1997); or • when the ESS interest is exercised and there is no real risk of forfeiting the share and the scheme no longer genuinely restricts disposal of the share (subsection 83A-120(7) of the ITAA 1997). For the purposes of Division 83A of the ITAA 1997, the term 'genuinely restricted' is not defined, therefore takes on its ordinary meaning. The term is explained in Taxation Determination 2022/4 Income tax: when are you genuinely restricted from immediately disposing of an interest provided under an employee share scheme? which sets out the Commissioner's view for working out when a scheme's disposal restrictions were genuine disposal restrictions and when the taxpayer would no longer be 'genuinely restricted' by the scheme for the purposes of determining the deferred taxing point.

Paragraph 21 of TD 2022/4 states in order for a genuine disposal restriction to occur, the scheme's restriction must control or limit the power or right to (voluntarily or compulsorily) sell, transfer, assign, deal with, make over or part with the ESS interest (whether legally or beneficially). Paragraphs 28 to 30 of TD 2022/4 further state that a scheme's genuine disposal restrictions may operate for either a fixed or variable periods of time. The period of time can be determined by many ways, including the vesting conditions, internal share trading policies, insider trading prohibitions or by any other means listed under the Corporations Act 2001 (Cth). The genuine disposal restrictions will no longer be restrictive at the commencement of the first date of which there is an opportunity to dispose of the ESS interest by way of sale, transfer or gift even if they are lifted only temporarily. The 30-day rule

The deferred taxing point is adjusted to the disposal date of the shares acquired by exercising the rights (the resulting shares) if that disposal occurs within 30 days of the times mentioned above, such as the exercise date. This is known as the 30-day rule under subsection 83A-120(3) of the ITAA 1997 where the time of disposal becomes the deferred taxing point. Application to your situation Based on the information provided: • The options were exercised on Date 2 which resulted in the issuing of ordinary shares, being the resulting shares. • The resulting shares remained subject to Company A's Securities Trading Policy, which required approval to be sought prior to disposing of the shares, including accepting the Takeover Offer; and • the resulting shares were sold on Date 4, which was the same date as Date 2. In accordance with subsection 83A-120(2) of the ITAA 1997 the deferred taxing point was the date the resulting shares were sold and not the date the options were exercised. Therefore, the deferred taxing point occurred on Date 4, being the date the resulting shares were sold by the Trustees.

Question 3: Is the employee share scheme discount amount arising in relation to the options included in your assessable income in the year the deferred taxing point occurred for the purpose of section 83A-110 of the ITAA 1997? Summary The deferred taxing point occurred when the resulting shares were sold by the Trustees during the ruling period. While the options were granted to the Trustees as your nominated associate, you and not the Trustees are assessable in relation to the ESS discount amount arising in relation to the options and must include the ESS discount amount in your income tax return in the income year in which the resulting shares were sold. Detailed reasoning Assessable amount Subdivision 83A-C of the ITAA 1997 provides that when certain conditions are satisfied, the discount in relation to an ESS interest (the ESS discount) is not included in the employee's assessable income in the income year they acquire the ESS interest but will be included when the deferred taxing point occurs under section 83A-120 of the ITAA 1997.

The ESS discount is the market value of the ESS interest (at the deferred taxing point) reduced by the cost base of the ESS interest under subsection 83A-110(1) of the ITAA 1997. ESS interests acquired by associates For the purposes of Division 83A of the ITAA 1997, the following rules apply to an ESS interest acquired by an associate (other than an 'employee share trust') in relation to the taxpayer's employment under subsection 83A-305(1) of the ITAA 1997: • treat the ESS interest as having been acquired by the taxpayer, instead of the associate; and • treat any circumstance, right or obligation existing or not existing in relation to the ESS interest in the hands of the associate, as existing or not existing in the hands of the taxpayer - this includes matters such as voting rights, restrictions on disposal, real risks of forfeiture and the cost base of the ESS interest, and • treat anything done or not done by (or to) the associate in relation to the ESS interest as being done by (or to) the taxpayer - this includes actions such as disposal of the ESS interest by the associate, or takeover of the company in which the associate holds the ESS interest. Who are associates

Associates of an individual is defined in subsection 318(1) of the Income Tax Assessment Act 1936 (ITAA 1936) to mean: • relatives of the individual; • a partner of the individual, or a partnership in which the individual is a partner; • if the partner is also an individual, the spouse and children of that partner, unless the partner is acting in the capacity of a trustee; • >a trustee of a trust under which there is a benefit to the individual, or to a company, partnership, trustee or other person who is classed as an associate of the individual under any of the other rules in subsection 318(1) of the ITAA 1936 • a company which is sufficiently influenced by: (a) the individual; (b) a company, partnership, trustee or other person classed as an associate of the individual under any of the other rules in subsection 318(1) of the ITAA 1936; (c) a company which is itself classed as an associate of the individual by reason of the application of this sufficient influence rule; or (d) two or more of the above entities.

Any amount that is assessable under Division 83A of the ITAA 1997 in relation to an ESS interest acquired by an associate, must be declared in the taxpayer's (employee's) income tax return, not by the associate. Application to your situation In your case you accepted Company A's offer to receive the options in relation to your employment. You nominated that they be issued to the Trustees, being your associate. Your nomination was accepted by Company A and the options were issued to the Trustees. In accordance with subsection 83A-305(1) of the ITAA 1997 you and not the Trustees are assessable on the ESS discount arising in relation to the options. As outlined above, the deferred taxing point for the options occurred on the date the resulting shares were sold. Therefore, the ESS discount amount arising in relation to the options must be included in your income tax return for the income year in which the resulting shares were sold.